It’s been a fairly wild week, which isn’t a surprise given the recent volatility, Nvidia’s earnings and this morning’s Jackson Hole Fed speech—as we write this morning (about 45 minutes after the Fed speech was released), most indexes are flat to down by 1% on the week, though the Nasdaq is up a bit more than 1%.
While yesterday’s big reversal was certainly ugly, we think there have been a few small positives under the surface. First is that growth stocks, which certainly kicked off this correction, did finally find some support this week, with the Nasdaq leading the way higher (albeit not a big move). Second, we continue to see a lack of interest even in defensive stocks, which you think big investors would be pining for if their top fears were recession or some sort of financial comeuppance. And third, there are more than a few sentiment measures that have quickly turned tail to multi-month lows, which is good to see. Thus, we’re chalking this week up as a small positive step.
That said, that’s as far as we’re willing to go right now—at this point, the intermediate-term trend of the major indexes is still down, and while we do see many individual stocks that could be good “resumption buys” (regaining some key levels after dipping below them), we obviously need to see strength develop first before doing much with it. We’d also note that interest rates, while not our primary focus, are still holding near their highs, which is likely to make things difficult for many sectors.
Long story short, the market is still in a correction phase, and whether that lasts another couple of weeks or couple of months is anyone’s guess—though the odds continue to favor the next major move being up. One interesting study by Ned Davis this week showed that the 15-month rate of change in margin debt just rose above negative-20%; in the past, that’s led to average gains in the S&P 500 of 29% a year later!
For now, though, we recommend exactly what we wrote on Monday: Remain cautious, holding plenty of cash and being very discerning on the buy side—while also remaining flexible should the market bottom out and get moving. We’re keeping our Market Monitor at a level 5.
POTENTIAL BUYS
Given the market’s action and a recent dilutive (convertible bond) offering, we’re impressed with the action of Apollo Global (APO), which dipped to its 50-day line last week and has bounced. It’s not a perfect chart, but a small position here or on dips toward 80 with a super-tight stop in the upper 70s (under the 50-day line) is an idea.
Marathon Petroleum (MPC) and other refiners continue to act well, with modest pullbacks so far during the correction. We do think further retrenchment is possible, but something under 140 here would be interesting, with a stop in the upper 120s.
SUGGESTED SELLS
Partial Sells
None this week
Full Sells
Boeing (BA) – tripped stop and cracked the breakout attempt from late July
RH Inc. (RH) – tripped stop and 50-day line
United Rentals (URI) – tripped stop
SUGGESTED STOPS
Acadia Pharmaceuticals (ACAD) near 27
Apollo Global (APO) near 77.5
ATI Inc. (ATI) near 42.5
Argenx (ARGX) near 480
Carrier (CARR) near 52
Chart Industries (GTLS) near 159
Fastly (FSLY) near 18
Old Dominion (ODFL) near 383
Southern Copper (SCCO) near 76.5
Tempur Sealy (TPX) near 42
Tidewater (TDW) near 56.5
Transocean (RIG) near 7.35
Zillow (Z) near 48.5
